10/27/2011 10:45 PM ET|
More rely on Social Security
Monthly benefit checks have a big role in funding retirement -- they make up nearly 40% of retirement income. Still, the size of a typical check is smaller than you might think.
Social Security is the most significant source of income for Americans age 65 and older, and its importance has continued to grow, according to a recent Social Security Administration report (.pdf file).
Social Security made up 38% of the total income of people age 65 and older in 2009 -- up from 30% in 1962 -- and is the largest source of retirement income. The second-largest share of retirement income is earnings from work (29%), a proportion that has remained consistent since 1962. Asset income has shrunk from 15% of retirement income in 1962 to 11% in 2009. Over the same period, income from private pensions has grown from 3% to 9%, and government employee pensions have increased from 6% to 9% of all retirement income.
Only a fortunate minority of Americans have significant sources of retirement income other than Social Security. Social Security made up 50% or more of the retirement income of 66% of Americans age 65 and older in 2009, up from 64% in 2008. And more than a third of retirees (35%) receive 90% or more of their income as a monthly payment from the Social Security Administration.
Social Security also covers more people than any other type of retirement benefit. The great majority of retired Americans age 65 and older (87%) received Social Security income in 2009, up from 69% in 1962. In contrast, only about half (53%) of older Americans have asset income in retirement, a proportion that is unchanged since 1962. The proportion of retirees receiving private-sector pension income has grown from 9% to 28%. And 14% of seniors have government pension income, up from 9% in 1962. The proportion of older Americans with income from work has fallen from just over a third in 1962 to about a quarter in 2009.
While Social Security makes up a large share of the typical retiree's income, the checks are fairly small. The average monthly payout to retired workers was $1,176 in 2010. More than 54 million Americans were paid a Social Security benefit last year. Retired workers make up the bulk of people receiving Social Security payments (64%), but the program also makes payments to disabled workers (15%), spouses of deceased workers (12%), and the spouses and children of retired or disabled workers (9%).
The proportion of women receiving retired-worker benefits has quadrupled since the program was founded, from 12% in 1940 to 49% in 2010. About a quarter (26%) of women age 62 or older received benefits on the basis of only their husband's earning record in 2010, down from 57% in 1960. A growing share of women (28%) now have a dual entitlement to Social Security on the basis of both individual and spousal earnings, up from 5% in 1960. Married individuals can claim Social Security on the basis of their own work record or up to half of the higher earner's benefit, whichever is higher.
Despite the program's growing importance, people now pay a smaller proportion of their income into the program than they did when it was founded. Only about 84% of earnings from employment were taxable in 2010, compared with 92% in 1937. That's because workers pay into the Social Security Trust Fund on earnings up to the taxable maximum, which was $106,800 in 2010. Some 6% of Americans had earnings from employment that exceeded the maximum amount subject to Social Security taxes in 2010, compared with 3% when the program began.
The federal program also has a long-term deficit. The Social Security Trust Fund is projected to be exhausted in 2036. At that time, payroll taxes and other income will generate only enough income to pay out 77% of program costs, unless tax increases, benefit cuts or other changes to the program are implemented.
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